Foreign Direct Investors' Outlays to Acquire or Establish U.S.
Businesses Fell Sharply in 2002 for the Second Year

In 2002, outlays by foreign direct investors to acquire or establish U.S. businesses
fell by more than half for the second consecutive year. Total outlays were $52.6
billion, down 64 percent from $147.1 billion in 2001 and 84 percent below the
record $335.6 billion in 2000, which was the final year of a three-year period
of exceptionally high outlays. As a result of these declines, spending for new
investments in 2002 was at the lowest level since 1994.

Outlays
for New Investment in the United
States by Foreign Direct Investors, 1980-2002

Billion $
p Preliminary

The decline in outlays in 2002 reflected continuing weakness in the U.S. economy
and in many foreign economies and a falloff in merger and acquisition activity
worldwide. New investment may also have been dampened by uncertainty about the
value of potential targets for acquisition and their future earnings prospects,
due to declines and volatility in the U.S. stock market and a few highly publicized
cases of questionable accounting practices.
Outlays fell in all major industry sectors, particularly in finance and insurance,
manufacturing, and information. The decline was especially severe in finance
and insurance, which had maintained high levels of outlays in 2001, even as
spending declined in other sectors. The decline was also widespread across investing
countries. In countries such as Germany, the United Kingdom, the Netherlands,
and Japan, which historically have been major sources of investment outlays,
weak economic conditions slowed the flow of direct investment into the United
States. Among major source countries, only France had an increase in investment
outlays.
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Outlays in 2002
By industry, outlays were largest in manufacturing ($17.3 billion) and information
($14.2 billion). Within the information sector, outlays increased substantially
in motion pictures and sound recording, while outlays in broadcasting and telecommunications
declined sharply, from $15.5 billion in 2001 to $2.4 billion in 2002. Outlays
in the finance (except depository institutions) and insurance sector declined
to only $3.2 billion; the decline followed three consecutive years in which
investments, driven by acquisitions of U.S. insurance companies, exceeded $40
billion.
By country of ultimate beneficial owner, France and the United Kingdom had
the largest outlays in 2002, together accounting for over half of the total.
Outlays by investors from France increased to $15.6 billion from $5.8 billion
in 2001, while outlays by investors from the United Kingdom fell to $13.0 billion
from $17.1 billion in 2001. Outlays by investors from many other European countries,
including the Netherlands ($3.2 billion), Switzerland ($2.8 billion), and Germany
($2.2 billion), were far lower in 2002 than in 2001. Outlays by investors from
Canada fell to $3.5 billion, from $16.6 billion. In the Asia and Pacific region,
Japan ($3.4 billion) was the largest source of investment outlays, followed
by Australia ($1.7 billion).
The ultimate beneficial owner is that person, proceeding up a U.S. affiliate’s
ownership chain, beginning with and including the foreign parent, that is not
owned more than 50 percent by another person.
The estimates of outlays for 2002 are preliminary. The estimate of total outlays
for 2001 has been revised up 11 percent from the preliminary estimate published
last year.
Employment of newly acquired or established businesses
Newly acquired or established businesses employed 182,000 people in 2002.
Manufacturing, with 74,000 employees, accounted for the largest share of employment.
Employment was also substantial in administration, support, and waste management (included in
“other industries”) and in information.

* * *

Estimates in this report are based upon a Bureau of Economic Analysis survey
that covers (1) existing U.S. business enterprises in which foreign investors
acquired, either directly or through their U.S. affiliates, at least a 10 percent
ownership interest and (2) new U.S. business enterprises established by foreign
investors or their U.S. affiliates, also using the 10 percent ownership interest
threshold.
Additional details on the new investments by foreign investors in 2002 will
appear in the June issue of the Survey of Current Business, the monthly journal
of the Bureau of Economic Analysis.

* * *

BEA's major national, international, regional, and industry estimates; the
Survey of Current Business; and BEA news releases are available without charge on BEA's
Web site:

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